03/31/2009

Transforming Contracts Organizations: Three Things to Do Right Now

Caveat: The organization model discussed here is a SAMPLE. Every contracts group is different, and the following should be viewed as a process for determining the right mix, not a prescription for a complete contract organization!

Organizational
transformation is a tough, thankless exercise. When you attempt to transform a
group of lawyers, negotiators, administrators and project managers – well, you
might as well paint a large target on your chest before even getting started.

This article
presents how to execute transformation in a contracts group (sales or
procurement) by recognizing some tough realities, making tough decisions, and
using existing HR and other tools to execute the basics of change.

This article
does not talk about what you should change; it charts how to set change in
motion.

Oh, and as for
that target, may I suggest red and white paint?

#1: Assess the
Impact of Automation & Outsourcing

In the last 15
years, the Contracting professions (procurement, sales & counsel) changed
substantially. The role of automation (reverse auctions, source selection,
procurement streamlining) drove many simple, repetitive tasks out of the
profession and into computers.

Example - A
Multi-year Deployment of Procurement Automation Software

During the
deployment, the classic procurement skill sets continued to form the
basis for hiring & promotion. People with deep commodity knowledge,
solid relationships with suppliers, and an understanding of day-to-day
operations in manufacturing are well compensated primarily due to their
seniority with the company.

Then, in the
space of a single quarter, the system comes on line, and commodity
procurement is largely handled via automation.

What happens
now?

In about three
months, all of the seniority in the department is flipped on its head.
Suddenly, the new hires with technological and negotiating expertise are
as valuable as the experienced hands with deep commodity knowledge and
solid relationships.

As a leader,
though, it is very difficult (politically and emotionally) to flip the
department around to reflect the new reality. So reorganization happens
slowly, if at all. The senior people end up in manager or
consultant-type positions, and the department ends up with a reputation
for “deadwood” in expensive, senior levels.

The next 10
years will witness a similar impact at the middle level of the profession, as
mid-level repetitive tasks involving some judgment are automated or sent to outsourcing
centers around the world.

These changes
are real, but they tend to build over time. The small changes then reach a
tipping point and big changes happen all at once. As a result, the skill sets
necessary to run your department may change, substantially, in a very short
time.

Think it can
only happen in procurement? Another example would be a software publisher who
sells only to customers in the United States. The publisher merges with a
professional services firm, and suddenly services are involved in every deal. To
compound matters, the merger expands the scope of business to global customers,
meaning that the cozy domestic contracts must now scale worldwide.

The team of
people who ran contracts for a domestic, software-only firm will be seriously
challenged by adding services and going global. Compounding the problem, there
is substantial inertia in the contracts profession, meaning that people aren’t
necessarily going to recognize that perhaps they are no longer qualified. So you
try to encourage change, and put the merger at risk with a sub-par contracts
team that increasingly resists change.

These are tough
problems to solve, but the good news is that the tool to solve them already
exists in most companies with an HR system.

#2: Review Job
Codes, Classifications & Salary Structures

The job
classification system in your company can help you hire and retain the best
negotiators, if it is used properly. Start out by reviewing the current job
classification structure in place for your teams. Odds are, if your department
grew by reorganization and combination, that you have a hodge-podge of job
codes, skill levels, and pay grades. The salary levels for your teams may vary
widely, and totally out of proportion to the relative value added. Even if your
department hasn’t changed in years, the job codes still merit a close look,
primarily for what they can do in retention.

Roll up your
sleeves; this is bureaucratic, unpleasant work! That said, it is the fastest way
to transform your department while minimizing turmoil, avoiding conflict, and
ensuring that your decisions do not create a perception of discrimination or
favoritism.

There are three
considerations here: job definition, ability to progress, and impact on pay. If
there are four roles that 90%+ of your people fit into, why not modify existing
job codes and align people into them? Most contracting teams can get by with
four basic functional areas:

Now, there will
be a broad spread of grades, in most systems that will result in an as-is map
that looks like the following:

After the job
definition work is done, we need to reshuffle to address ability to progress.
Start by answering a few tough questions about your organization today.

First, which jobs are appropriate entry-level
points to your organization for new graduates? Do people learn things here that
translate to the other functional areas?

Second, which functional areas should “top out”
by mid-career (i.e. senior level staff in these functions do not add enough
value to justify their higher cost)?

Third, where do you need to allow for
high-level individual contributors to attract and retain the best talent?

Based on
answers to these questions, you may end up with a functional/organizational map
that looks like this:

In this
organization, the following logic applies:

Entry-Level

Automation
and outsourcing eliminated most clerical and task-oriented work. People
entering the organization need to have the education and drive to progress
to higher levels without extensive hand-holding by the company.

New entries
start in either acquisition (bids/proposals) or administration, this gives
them the seasoning and business experience necessary to progress. Ideally,
people spend time in both acquisition and administration to get a full view
of the business cycle.

At first
promotion, people can either stay in their current functional area, or
rotate to the other. There are also two other paths available:
infrastructure (building/managing the systems and relationships needed for
the contracts organization to operate) and people management. In both of
these branches, specific technical or leadership ability is required for
success.

By Mid-Career,
the expectation is that:

People with
a genuine passion for their jobs will continue to excel in their functional
area.

Burn-out
may start to be a factor, some people will rotate out of the organization
into parallel fields (legal, finance, sales, manufacturing).

People will
enter the organization from parallel fields, and need to be brought
up-to-speed on processes and skills.

Mid-career
is an ideal time for an assignment in Infrastructure, or formal experience
with people management.

In this
organization, there is little perceived value in high-level staff
progressing in Administration, this plateau must be clearly communicated and
reflected in lower pay increases and minimal progression.

Finally, in
Senior & Global levels

People
continue rotating out of and into the organization, but the time to come up
to speed for senior level people is going to be quite high.

Because of
salary differentials, some infrastructure positions in technology may start
off at this level

Senior
specialists in acquisition and infrastructure should have clearly defined
roles, and be viewed as peers to the Senior Managers in the organization,
that said, these specialists are not in the chain-of-command, this plateau
should be communicated.

An
excellent negotiator (Contract Acquisition) is not usually in-line to be the
next Director without significant people management experience coupled with
political savvy. This will come as a shock to many, and you will lose
extremely high-value negotiators to the competition. Address this by
creating a super-category (“Global”) for these unique individual
contributors. While they are not in the chain of authority, they outrank
senior managers and report directly to the Director or VP.

#3: Encourage
a Mix of 1st and 2nd Chairs while Avoiding Victims

To recap, say
you are in the “top-heavy” organization identified in step #1. The first step
was to recognize the changes that put your people out-of-step with the mission
of your company (as well as the current state of the profession.) Next, you
mapped the as-is and desired organization with job codes, plateaus and salary
caps.

Once this is
done, you now must communicate the expectations for each level to the entire
team. In the example, this would mean working out a plan with senior-level
people in the Administrative functional area, giving them time & assistance to
rotate into other areas. People who do not meet the minimum educational
requirements to progress within the organization are given encouragement and
tuition assistance to obtain the right level of credentialing.

While all of
this takes time, the clock is ticking on your organization, you must see rapid
and enthusiastic progress from individuals on the team, or move them out.

To this point,
our focus was on capability, now let's turn to ambition and passion.

An organization
needs a balance of talents to survive. Going back to my time in a concert
orchestra, I think of these as 1st and 2nd chair performers. 1st chair
performers are Stars, high-caliber
fast-track high-potential people who close major deals, revolutionize
administration, develop high quality infrastructure or consistently lead their
team to new heights.

All of this is
great, but an organization made up of Stars usually ends up infighting as each
person tries to get their share of limelight. This is where the 2nd chairs
come in. In an orchestra, or an organization, these are the people who deliver consistent quality, and are satisfied
with a paycheck and predictability rather than the limelight. This is also
great, but an organization made up of Second-chairs may lack the zip for
real progress, miss opportunities for executive visibility, and occasionally
devolve
into Victims if left uninspired for too long.

While an organization must encourage the
growth of Stars and Second-chairs, it must act to limit the growth of Victims.
These are the people who find fault with everything, complain incessantly, never
come up with an idea, and excel at tearing down others and stalling progress.
While the contracts profession has its fair share of Stars and Second-chairs,
for some reason it seems to attract more than its share of Victims. Even a few
Victims in a contracts organization will drag the organization down by impairing
its credibility. As a leader, it is your job to identify the Victims, give them
a road map to improve, and if they don’t change, shove them not only out of the
organization, but all the way out of the company.

In a sales
contracts organization, I’ve found an ideal ratio of one Star to five or ten
Second-chairs, the precise numbers are less important than the fact that there
is a mixture.

In procurement
organizations, one Star for twenty Second-chairs may be more appropriate.
Opportunity-based (sales) organizations value and reward the fast-burner Star
mentality more than risk-managing procurement organizations.

The ideal mix
of Victims is ZERO, but that is unlikely. At any given time, however, more than
one Victim per 50 staff will significantly drag the organization. More than 1 in
10, there is likely no hope for the organization without a massive change.

Other thoughts
here:

The fastest
way to turn a Second-chair manager into a Victim is to move too many Stars
through their organization.

Many
Second-chair staff think they are Stars, until they work with one. Then, a
Second-chair will usually demonstrate the professionalism and
self-knowledge to be satisfied with their important role. Occasionally, the
example transforms the Second-chair into a Star.

All Victims
think they are Stars, just terribly unappreciated.

Stars tend
to get bored unless they are challenged, recognized and promoted frequently.
Most contracts groups tend to value long tenure and predictability over
quick wins and popularity. Managing this dichotomy is the fundamental
challenge faced by leaders of contracting organizations.

Second-chairs must see a promotion path that does not involve Stardom. The
second-worst thing that can happen to your organization (after a Victim
infestation) is an exodus of Second-chair staff. Expect Stars to leave, but pour
money into retaining those Second-chairs!

So, to continue with the example above, assume
that every part of your team needs those Second-chair traits of reliability,
professionalism and teamwork. Sections of the team friendly to Stars are flagged
in Red below:

Rationale

Contract
Acquisition offers the pace, opportunity for recognition and promotion that
attracts Stars. Infrastructure is a good place for Stars who have a gift for
the administrative side, and a passion for automation, streamlining and
other quality initiatives.

Administration, with its need for stability and governance, often does not
provide the opportunity for quick advancement that Stars require.

Many will
find my omission of Stars from middle Management to be disconcerting. My
experience is that while Stars tend to be promoted into management, their
short attention span, desire for rapid change, and hunger for recognition
often cause them to become unhappy in the role. By all means, attract a Star
to the top rung of the organization, but encourage the steady, reliable
Second-chairs to lead the various teams.

Why no
space for Stars at the Entry-level and First Promotion rungs of the ladder?
At this stage, people need to be demonstrating that they are capable of high
quality, repeatable & desirable work. Encouraging the development of Stars
too early can cause the next wave of a contracts organization to devolve
into glory-hounding and interpersonal conflict. This runs counter to
increasingly high expectations of Generation Y, but this is another
challenge that must be faced.

Remember,
Stars are valuable because they shake things up, challenge the status quo,
and create great new opportunities for the company. They can also be a royal
pain because of just those traits. The successful contracts organization
wants a core of Second-chair performers who enjoy the job, leavened with Stars to put
the fire in the organization.

Summary

Assess the
impact of automation on your organization. Do you have too many people with
the wrong skills? Worse, are they refusing to recognize this and evolve?

Realize
that significant outsourcing and offshoring of the contracts & procurement
function will be a reality over the next 10 years. Plan your team’s career
tracks accordingly.

Realign job
codes and “top-out” points to reflect the relationship of job functions to
your corporate mission, as well as where you believe the team & profession
are headed. Communicate these as realities, and give people time to meet the
new expectations.

Some people
either will not be able to adapt fast enough, or will demonstrate a marked
lack of enthusiasm. They need to go before they become Victims and poison
the team.

Enthusiasm
& initiative count, so individuals must be encouraged to try. The team,
however, needs people who can meet the needs of the company today. Balancing
between individual and team needs is why you earn the big bucks.

Every
organization needs Stars and Second-chairs, your value add is setting the
ratios, helping Second-chairs become Stars, and avoiding the proliferation
of Victims.